Tyco's CEO Discusses F2Q11 Results - Earnings Call Transcript

Tyco International Ltd. (TYC)

F2Q11 Earnings Call

April 26, 2012; 08:00 am ET

Executives

Ed Breen - Chairman & Chief Executive Officer

Frank Sklarsky - Chief Financial Officer

Patrick Decker - President of Flow Control

Naren Gursahaney - President of Tyco Security Solutions

George Oliver - President of Tyco Fire Protection

Antonella Franzen - Vice President of Investor Relations

Analysts

Jeff Sprague - Vertical Research

Scott Davis - Barclays

Steven Winoker - Sanford Bernstein

Ajay Kejriwal - FBR Capital Markets

Gautam Khanna - Cowen

Steve Tusa - JPMorgan

Nigel Coe - Morgan Stanley

Deane Dray - Citi

Presentation

Operator

Welcome to the Tyco second quarter earnings conference call. At this time all lines have been placed on a listen-only mode until the question-and-answer session. (Operator Instructions).

I’d now like to turn the call over to Antonella Franzen, Vice President of Investor Relations. Thank you. You may begin.

Antonella Franzen

Good morning and thank you for joining our conference call to discuss Tyco’s second quarter results for fiscal year 2012 and the press release issued earlier this morning.

With me today are Tyco’s Chairman and Chief Executive Officer, Ed Breen; and Tyco’s Chief Financial Officer, Frank Sklarsky. Also joining us for today’s conference call are the President’s of Fire and Security, ADT and Flow Control. George Oliver, Naren Gursahaney, and Patrick Decker, who will provide updates on their businesses and also participate in the Q&A sessions following our remarks.

I would like to remind you that during the course of today’s call we will be providing certain forward-looking information. We ask that you look at today’s press release and read through the forward-looking cautionary informational statements that we’ve included there. In addition, we will use certain non-GAAP measures in our discussions and we ask that you read through the sections of our press release that address the use of these items.

The press release issued this morning and all related tables, as well as the conference call slides, can be found on the Investor Relations portion of our website at tyco.com. Please also note that we will be filing our quarterly SEC Form 10-Q later today.

Certain items to be discussed during today’s call, including those related to the company’s proposed separation, will be addressed in a proxy statement to be filed with the Securities and Exchange Commission. Before making any voting decisions, investors are urged to read the proxy statement regarding the proposed separation and any other relevant documents carefully in their entirety as they become available, because they will contain important information about the proposed separation.

Free copies of the proxy statement when available and other documents filed with the SEC by Tyco can be obtained through the SEC’s website, as well as through Tyco’s website.

I would also like to remind you that we recently filed a Form 10 registration statement related to the ADT Corporation and posted a slide deck related to the Form 10 to our website. We also intend to file documents with the SEC, related to the Flow Control and chair merger and the Tyco shareholder votes related to the transaction within the next week. Due to the SEC filing process, we are restricted in what we can say with respect to the transactions and therefore ask that you limit your questions during to Q&A session to those related to our quarterly results.

In discussing our segment operations, when we refer to changes in average revenue per user, backlog and order activity, these figures exclude the impact of foreign currency. Additionally, references to our operating margins during the call exclude special items and these metrics are non-GAAP measures. Again, these non-GAAP measures are reconciled in the schedules attached to our press release.

Now, let me quickly recap this quarter’s results. Revenue in the quarter of $4.4 billion increased 9% year-over-year with organic revenue growth of 7%, nicely ahead of our previous guidance. Foreign currency negatively impacted revenue by less than 1% and acquisitions added three percentage points to our overall year-over-year revenue growth.

Earnings per share from continuing operations attributable to Tyco common shareholders was $0.71 and included charges of $0.15 related to special items. Earnings per share from continuing operations before special items was $0.86.

Now, let me turn the call over to Ed for some opening comments.

Ed Breen

Thanks Antonella and good morning everyone. Our second quarter performance was highlighted by strong organic revenue growth. Order momentum over the last few quarters, coupled with continued growth in our ADT Residential business continues to drive higher top line growth. Our large and stable base of recovering and service revenue, which represented 45% of our revenue in the quarter, coupled with strong operating leverage led by the Fire and Security manufacturing businesses drove the operating performance of this quarter.

Additionally the benefit from our restructuring and cost containment initiatives helped fund additional investments across our businesses. Overall, operating income before special items increased 15% and earnings per share before special items increased 18% year-over-year.

From an orders perspective, we saw continued acceleration from the 8% year-over-year order growth we saw in the first quarter, to 13% growth in the quarter we just exited, with 9.5% growth in Fire and Security and 21% growth in Flow Control. Our order activity combined with continued growth in our backlog puts us on track for even better operating performance in our seasonally stronger second half.

Now let me give you a quick overview of our results for each of the businesses. Starting with the new Fire and Security segment, the combined portfolio provides the nice mix of service, installation and product offerings. Top line growth in the quarter benefited from both an acceleration in organic growth, as well as the contribution from the various bolt-on acquisitions we recently completed.

Our operating performance in the quarter was strong. Operating income grew twice as fast as revenue, resulting in a 70 basis point improvement in operating margin year-over-year.

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